What Hugh McColl Did for the Bank Industry

If you were to make a list of the most influential bankers in the United States, few would surpass Hugh McColl, the former CEO of Bank of America (NYSE: BAC). It wasn't just that McColl was largely responsible for building Bank of America into the behemoth it is today. He was also the driving force behind legislation that opened up interstate banking across the country.

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Gaby Lapera: I'm going to tell you a little bit of a meandering story, a little bit of a Maxfield story, if you will. [laughs] I'm going to start with this challenge that was posed hypothetically to myself, which is to pick the top three bankers in the United States. The first one is Alexander Hamilton, which kind of goes without saying. He was the one who was like, "You know what we should do? We should have central banking. Also, America's future is not agrarian." You know, I think he called the right shot on both counts with that one.

Second banker that I think everyone can agree was huge for the American financial system is J.P. Morgan. He helped bail out the American financial system, he created these connections with Europe. Without him, I don't really know where we would be as a country. But then, if forced to pick a third one, and I know that Maxfield definitely agrees with me on this, I would pick Hugh McColl of Bank of America. I don't know if listeners know this, but you know how you can go to Bank of America and there's a Bank of America in basically every state -- except for Nebraska, much to my ire. There's a Wells Fargo in Nebraska. Anyway. Before, you couldn't do that. Before, it was really hard for banks to have branches, and it was illegal in a lot of states for banks to have more than one branch. And that was for a variety of reasons. But, back in the day, Hugh McColl, he was in North Carolina, one of the few states that allowed banks to have more than one branch, and he really pushed for legislation to be changed so that banks could branch outside of their state. Without that, we wouldn't have the financial system that we have today.

John Maxfield: Yeah. I think that's a great overview. Alexander Hamilton wasn't actually a banker, and I think this is exactly the point you're trying to make -- if you look at the bank industry that we have today and you had to pick three people who had the most significant contribution to how it has evolved, the first one, yeah, Alexander Hamilton, because he set this thing up. The second one, J.P. Morgan, because he was the link between us and Europe during the American Industrial Revolution or the Gilded Age, which is really where the United States of America gained its power. And then, more recently, Hugh McColl. To your point, when he started banking, Hugh McColl joined a small bank in North Carolina in 1959. When he started banking, it was called unit banking at the time. Unit banking meant that you could basically just have one location in most states. You couldn't have branches in most states. And you couldn't operate across interstate lines. And think about how different that is relative to what we have today, where we have a bank like Bank of America and a bank like Wells Fargo and JPMorgan Chase, literally, the branch networks span the North American continent. And the person who is most responsible for that is Hugh McColl. What he did is, he really proactively pushed, he saw the importance of expanding branches across interstate lines and having larger branch networks.

Let me add a little bit more context around this. There's a guy named Charles Calomiris who's probably the top bank historian in the United States. Really, in particular, he's at the top when it comes to understanding how the regulatory environment has evolved over the years in the United States. And one of the things he talks about in this incredible book called Fragile By Design that goes back through the history of banking and regulatory policies, one of the things he talks about in there is that, in Canada, they basically had no banking crises over the past couple hundred years, whereas in the United States, we've had 17 major banking crises. And you say, "Why would the United States have so many but Canada wouldn't?" And one of the reasons is, we didn't let our banks, for all these years, expand and diversify geographically. If you were an agricultural bank in Nebraska, to your point, which is also, I'm from Wyoming, right across the border to Nebraska, my family's business is principally in Nebraska. And what you would see is, you would have these agricultural depressions or you would have droughts that would hit those areas. Well, the banks in those areas, if you could only operate in that area and you had a drought and you were an agricultural bank, you had no hope. The farmers wouldn't be able to pay their debts and you would go under. What Hugh McColl realized, and other people realized this, too, is, look, if you could have branches in all of these different regions, you would reduce the fragility of each individual bank. And then, you wouldn't have as many financial crises, because financial crises are fueled by bank failures. And Hugh McColl is really the one who, at Bank of America, pushed through, came up with this idea and proactively pushed through the legislation that changed the United States banking structure from one based on unit banking to what we have today.

Lapera: I think listeners are probably thinking to themselves, "This is a wonderful story!" Thank you, listeners. We really appreciate that. Secondly, they're probably also wondering, "What is this meant to illustrate?" And I think the thing that we're trying to get at here is that really great bankers and really great banks are really proactive at seizing opportunities and making opportunities for themselves.

Maxfield: That's exactly right. The laws were against Hugh McColl's ideas, so what did Hugh McColl do? And I literally talked to Hugh McColl two weeks ago, and the way he explained it was great. He said, "Look, it was my banker." It was Bank of America's in-house banker who wrote the legislation for what was called the Southeast Regional Banking Compact, which then allowed banks in all the states in the Southeast to have branches within each of them, so you could expand and have these regional banks. And it was Bank of America that got that ball rolling. They wrote that legislation, got that ball rolling that eventually culminated in a piece of legislation that was passed in the U.S. Congress in 1994 that then opened up branch banking across the entire United States.

Lapera: Yeah. I think, how that's applicable today is, what banks should be looking for, generally, the opportunities that they're going to need to seize to create opportunities for themselves, are probably going to be in the tech arena. So they stay relevant, and not just relevant but push beyond that, and find the next thing that will make them bigger, more stable, draw more customers in.

Maxfield: Oh my God, that's such a good transition, Gaby. The reason that such a good transition is because one of the benefits of Bank of America today, one of its advantages is, because of Hugh McColl's work, building that banking to what it is today, the behemoth that it is, it has the economies of scale to invest in technology. And technology is where the battle of banking is being fought right now, and really will be fought in the future. And it's because of the scale that Hugh McColl built that they're going to be able to compete effectively in that arena.

Gaby Lapera owns shares of JPMorgan Chase. John Maxfield owns shares of Bank of America and Wells Fargo. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.